Central banks are trying to catch up

Central banks surprise and show that they do not lay down their arms in the fight against inflation. However, a change in bias to a more restrictive one may cause the market to speculate that institutions are trying to catch up at all costs CPIs, which means that at some point they made a mistake by starting the tightening process too late or by raising rates too slowly.

Rebuilding credibility

The Bank of England (BoE) and Norges Bank raised interest rates by more than expected (50 bp), to 5% and 3,75% respectively. and XNUMX percent BoE Governor Andrew Bailey said that "the economy is doing better than expectedbut inflation is still too high and we have to deal with it." For the Norwegian central bank, it was the 11th increase in interest rates in a row. The bank committed to further tightening its monetary policy in order to counter persistent inflation and a weak currency.

In turn, Swiss National Bank (SNB) raised interest rates by 25 bps to 1,75 percent, as expected. SNB chairman Thomas Jordan said that "this is not the end - more rate hikes will most likely be necessary to permanently bring inflation below 2 percent." There has been a big change in Turkey. The institution raised the cost of money by 650 bps to 15 percent. It's a big step, but it's still there less than expected. The market assumed a change to the level of 20%. In this case, yesterday's decision started a long-awaited turn, aimed at rebuilding the credibility of monetary policy.

Visible disappointment

During the second day of testimony at the Capitol, Fed Chairman Jerome Powell repeated the announcement of further hikes this year. He stated that "it will be appropriate to raise interest rates again this year, and be maybe even twice".

The pound against the dollar strengthened only for a moment. The Norwegian krone also gained briefly. The EUR/NOK pair fell below 11,55 but is already trading at 11,80 today. Since yesterday afternoon, the USD advantage is visible again. This morning we got to know the PMI indices from Europe, which surprised negatively. The euro loses sharply and the main currency pair drops to around 1,0860. The French index for services fell below 50 points. to the level of 48 points, the index for German industry was disastrous (41 points). Disappointment can be seen across the board, fueling speculation that the ECB will soon soften its tone due to the slowing economy.

Source: Łukasz Zembik, OANDA TMS Brokers